Tuesday, 23 August 2016

Some non-shocking statistics on gender pay from the IFS

‘On average, women in paid work receive about 18% less per hour than men’. So reads the opening line of an Institute for Fiscal Studies–Joseph Rowntree Foundation press release for a new briefing note today.

Here we go again. It’s a shame that another two high-profile organisations are propagating this. As we argued in last week’s ‘How much do you earn?’ paper, these aggregate statistics are largely meaningless and designed to create a sense of unfairness. Are these workers full time or part time? In the public or private sector? How many years’ experience? The education level of the workers? What type of roles? What is the age profile of the workers? And what about all those compensating differentials which we know are important?

This is not merely theoretical, because using these stats as a catalyst to force pay to be equal for work which the market rates unequally produces damaging distortions in the economy.

But taken with all these caveats, the IFS report helpfully provides us with some facts which are pretty intuitive:
1) The gender wage gap per hour is falling (down from 28 per cent to 18 per cent between 1993 and 2015), which we’d expect given educational and societal trends. Though it must be said, this is not based on the ONS’s preferred definition of the pay gap, or their preferred data source.
2) The wage gap between young men and women, where you’d expect societal and educational trends to bite most, is just 6 per cent (before you even control for any of the points above).
3) The wage gap prior to having children is much lower at 10 per cent than the overall average wage gap, suggesting that having children is a big contributory factor.
4) Indeed, following the arrival of the first child, the wage gap steadily increases, on average, to 33 per cent after 12 years.
5) Why is this? A big clue is that 20 years after the birth of their first child, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.

A lot of research now tell us that points 4 and 5 are some of the most important reasons for the male/female wage gap.

In a paper, "A grand gender convergence: its last chapter" by Claudia Goldin in the American Economic Review (104(4): 1091-1119), it is argued that reducing the gender gap in pay requires greater temporal flexibility, to help counter points 4 and 5, in the labour market. Being able to work long hours and work particular, antisocial hours is limited by childcare responsibilities. This effects women more than men and thus changes to the structure of labour markets with regard to hours worked and remuneration will advantage women to a greater degree than men.

The abstract of the paper reads,

The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.

But presumably firms reward individuals who labour long hours and work particular hours because it is profit maximising for them to do so and thus this may be a feature of the particular industries in which it occurs. If so this could be a difficult thing to change, it would take either a change in the cost structure of the industry, what would bring about such a change?, or a change on the demand side, that is, customers would have to start demanding a different set of goods or services. Why would they do so?